How We Make a No-Commitment Model Work

When we set up our fulfillment company in 2013, we decided to axe the long-term commitment model. This means we don’t ask our eCommerce clients to be with us for a minimum of six years, or even 12 months. We have instead a revolving, monthly fulfillment service agreement.

This method required a leap of faith for us, as it would for any business. Any profit seeking business relies on cash flow projections to carry you through each quarter, and it’s harder to understand how well your business is doing if you don’t know how many clients you might lose at any given time.

But despite the risk of uncertainty that a no-commitment model brings to our business, it’s served as a key differentiator and helped us grow our business more quickly than we’d imagined.

Here’s why we chose it, and how we’ve made it work:

Understand the Customer’s Pain Points
First, think about the psychology of your customer: If there’s uncertainty around what you can deliver, will they be willing to invest in a long-term partnership? Our customers’ pain points largely come down to three factors: trust, accuracy, and scalability—all of which a no-commitment model helps alleviate.

Accuracy
In our business, if one element fails, the entire ecosystem of our client’s cash flow suffers. It could be as minor as the fulfillment company’s accuracy rate going from 100% to 98%, yet that 2% drop could weave significant havoc on your bottom line. It could be something as significant as what our sister company experienced having $300,000 worth of inventory that simply went missing. We realized that, even though it was easier for us to rely on long-term contracts, it wasn’t in our prospects’ best interest—and if we moved to a no-commitment model, we’d be likely to get more takers from day one. But it’s one thing to make bold claims like this, which is why the next factor is even more critical.

Trust and Transparency
Accuracy only works for the customer when the second factor of trust—and its close bedfellow transparency—are at work. Our sister company had no idea of what happened to that $300,000 of inventory that went missing—was it entire pallets sitting unprocessed in a corner? Was it stolen? We didn’t have the transparency into their processes to be able to accurately find out.

So when we set up our own company, we created a culture with vigorous transparency. We diligently report on ourselves; if we break something, it will appear on our client’s next invoice as credit. Our clients also report on us. If a client has a customer who says they didn’t receive the proper order in the mail, we will take that complaint, go back to the specific time stamp and check the associated security camera footage—zooming in to see whether the right number of keyboards were packed. We can help to prove whether that customer complaint is legitimate. By working in this way, trust is established and long, fruitful relationships can be built and sustained.

Scalability
We know that our customers are at different stages of growth, and in some cases, it can be difficult for them to make a long-term commitment to using partner services if they’re hoping to offer the service in-house in the future, or if they’re not confident that their partner can continue to deliver as they scale. Business owners should be able to say, “I’ve really appreciated your help, but we’re now scaling beyond your capabilities and I need to fire you.” They shouldn’t need to be locked into a long-term contract or pay an exit fee.

Choose Your Partners Carefully
The way to success in a no-commitment model is to be strategic about the clients you
bring on board and focus on a specific niche within which you can become world-class. This allows us to be highly tactical in the businesses we partner with. If an ecommerce store sells tee-shirts and baseball caps, we’re likely not the right match. We’re focused on working with companies shipping their products in boxes, usually with an average weight of five pounds or greater, and we’ve tailored our process to match those clients’ needs. We have certain criteria and if our clients match that, we’re going to be a super-powerful partner for them, and they’re going to be a profitable client for us. When it’s a solid match from the start, the need to be tied into a long-term contract is mitigated.

Underpromise, Overdeliver
You also need to be clear and conservative on the promises you make. We won’t ever make promises we can’t fulfil on 100%. When you don’t have a contract to rely upon, you need to make sure your customers are winning every step of the way, so be sure to establish very clear expectations—then overdeliver on them.

Agility As the Future
We’ve been in the business now three years, and our approach is working for us incredibly well. A major benefit of adopting this customer-centric way of thinking is the immediate marketing benefit. It effortlessly shines a positive light on us. Customers can recognize that what we’re saying is, we know how important we are to you and will be proving ourselves month after month.

But there are also operational benefits: That ability to fire a client goes both ways. If we had a client who after six month, is not paying their bills on time, that can quickly become a big issue. So this agility give us added benefits in choosing the clients we engage with.

As the speed of business increases, companies need to be able to pivot rapidly. They need specialization, partners who are 100% focused to being the best in their field, and they need to be in an equal relationship based on performance. This is what leads to flourishing, happy, long-term partnerships.

Eric McCollom is the President of Red Stag Fulfillment, one of the country’s most pioneering and future-proofed online order fulfillment centers. Over the span of his career, McCollom has led the successful deployment of Lean Enterprise and Six Sigma/DMAIC tools in more than a dozen medium- and large-sized organizations, helping them increase revenues and profitability through the continuous improvement of flow time performance and process reliability.

2 Responses to How We Make a No-Commitment Model Work

Though your company does not require commitment OF customers, having read your corporate statement of commitment TO customers – “We seek to foster a culture of excellence at Red Stag Fulfillment. Our core belief is the idea of continuous improvement. It’s this approach to our business that translates into the commitments, guarantees, and attention to details we offer our customers” – which is impressive, I’m left with a value delivery and executional question. What is Red Stag Fulfillment doing to ensure the commitment of employees to the organization, to its product and service value proposition, and to the customers? Cultural trust and transparency are featured in your post; however, to be truly customer-centric, the role of employees as critical partners in optimizing experience delivery wasn’t addressed. It would be instructive to know how the employee experience plays into what Red Stag is doing for customers.

Great question Michael. Employee engagement requires a multifaceted approach. This reply can’t be exhaustive, but some of our tactics include: (1) Setting and communicating clear goals that are aligned to the customer experience. We incentivize behaviors and decisions based on these goals through performance bonuses and recognition. (2) Communicating consistent expectations that focus on details in every area of the business. This includes facility maintenance and upkeep, materials management, workplace organization, etc. (3) Encourage and promote team engagement in problem solving and process improvements. The best ideas come from the team doing the job everyday. This includes providing prompt feedback to ideas that are submitted. (4) Invest time in developing relationships with our team. This is tough to scale as we grow, but we want our team to feel important to the overall mission of our company. All leaders are encouraged to take the time needed to know their team and develop a sense of “family” to the extent possible. Sometimes this looks more like the commitment of a collegiate sports team than an actual family, but we strive to develop a sense of mutual commitment between leaders and front line operations. To summarize this point: we have high expectations of our team, and they should have expectations of their leadership.
Of course this isn’t an all inclusive list, but it hits some of the more important efforts we make to develop the commitment of our team to our company goals.

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